What started with the migrations of early adopters toward software-as-a-service applications has become a fast-maturing strategy that has business and it leaders considering any potential cloud service offerings when evaluating new technologies.

Value Before Hype

Hype notwithstanding, just because a company finds a few logical uses for software as a service doesn’t mean it’s a fit for a more aggressive cloud computing strategy—yet. TiVo, the popular digital video recording pioneer, took its first tentative steps into the cloud when it began subscribing to an on-demand human resources application last fall. Recently, it added a subscription to an on-demand CRM app.

But those are probably the two most proven categories of SaaS, and they represent the extent of TiVo’s foray into the cloud—at least for now, says Richard Rothschild, senior director of IT. Rothschild says he’s taken a close look at Amazon Web Services’ S3 storage offering, but in Tivo’s case, “it doesn’t make sense, even economically.” That’s because TiVo built its infrastructure to contend with the company’s spikes in demand. “We’re not going to hit a capacity problem,” says Rothschild.

Still, Rothschild is keeping an open mind. He’s got a close eye on the Google App Engine platform as a service, for instance, in case the numbers start to make sense. “The moment I think it’s a better value for TiVo, I’m going to push for it,” he says.

The Real Cost of the Cloud

Cloud computing offers some real cost benefits, such as eliminating the need to spend capital dollars on infrastructure and only having to pay for what you use, reports Tony Treccapelli, the head of New York-based Alvarez and Marsal’s National Information Technology Solutions team. “This is especially beneficial for smaller companies and businesses that have been divested,” he says.

“The fact that costs aren’t fixed gives these organizations more flexibility to run their businesses. These firms aren’t in a position to develop their own infrastructure and, even if they were, they don’t have the staff necessary to manage it.”

However, Treccapelli adds that over the long term, it may be less expensive for some organizations—especially larger ones—to invest in their own infrastructure. “We estimate that the break-even point on these managed services is approximately three to five years for midsize companies and less time for larger enterprises,” he says. Treccapelli predicts it will be “well into the future before cloud computing becomes pervasive for large companies.”

What will bring more large enterprises into the fold? “Providers will have to increase both their user base and the number of applications that are cloud-ready,” Treccapelli says. “That will bring down the costs and make cloud computing more competitive for existing companies that already have an infrastructure in place.”